What is Micro-Investing?

If you’re just starting to look at investing, then micro-investing could be an interesting starting point. But what is micro-investing, and how do you get started?
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Have you ever been told that investing is expensive? Assume that you need heaps of cash to get started and it only works if you’re adding big sums and taking huge risks? Well, the truth is, it used to be like that, but not anymore!

Nowadays, you can invest easier and cheaper than you may think thanks to micro-investing!

What is micro-investing?

In the simplest terms, micro-investing is exactly the same as investing. The big difference between micro-investing and investing is how much money you need to get started. For example, you can start micro-investing with as little as £1, but with traditional investing, you may need to commit to paying hundreds or even thousands.

The important thing to note is that although the amounts you put in are much smaller with micro-investing, you can still be invested in the same things. This is thanks to ‘funds’, which are a collection of different investments that you can buy a small part of – these little parts are called fractional shares, as you’ll hold a faction of that particular share.

This means that even as a micro-investor, you could be invested in big companies like Apple, META (previously Facebook), and Google. However, with your fractional shares, you’ll be able to own a bit of these companies for a fraction of the cost of buying individual shares in each company.

As this approach is cheaper than buying individual investments, micro-investment providers – like Wealthify – can also offer low fees to expertly take care of your investments for you.

What are the benefits of micro-investing?

Perhaps the biggest perk of micro-investing is that you can do it without making a single change to your lifestyle or savings habits. You simply put a few quid into your investment Plan every now and again, and that’s that. So, yes, you can invest without giving up the things that bring you joy! Want to buy new clothes? Go for it. Feel like popping out for a few drinks with your friends? No problems. You could even round up the change and add that cash to your investments each month.

The idea with micro-investing is that it’s really small amounts of money, cash that you wouldn’t miss, which could build up into a much bigger pot over the long term. But even if you just put a small amount of money in and left it, there’s still a possibility that it could grow through compounding – which is where the returns on your investments are reinvested to earn their own returns.

Here’s a quick example to show you what we mean by this (using a fictional return of 5%).[1]

Year

Investment

Return%

Return £

Total

1

£10

5%

£0.5

£10.50

2

£10.50

5%

£0.52

£11.02

3

£11.02

5%

£.055

£11.57

4

£11.57

5%

£0.57

£12.14

5

£12.14

5%

£0.60

£12.74

In this scenario, your annual returns increased by 10p over 5 years simply because you reinvested the existing returns. After 15 years with no additional contributions (with zero fees and provided that the 5% rate of return stayed the same), then you could have £20.79 invested – that’s double your initial investment without you having to do a thing!

Can you micro-invest by drip feeding?

Yes! Drip feeding your investments is a popular technique called pound cost averaging, and it could help to make your investment journey smoother. But in addition to that, it’s an easy way to increase the value of your overall portfolio.

For example, let’s say that instead of investing £10 once and leaving it for 15 years, you invested £10 every month for 15 years. On the face of it, £10 a month doesn’t seem like much, but over 15 years that investment Plan could be worth £2,336![2]

But it doesn’t even need to be as much as £10, if you think you’d struggle with that, then you could invest smaller amount. Want to see projected returns for your micro-investments over a certain time frame? Check out the sliders when you create a Plan with Wealthify.

What are the cons of micro-investing?

While micro-investing has a lot of great perks, investing very small amounts isn’t exactly going to make you rich. However, it is important to remember that with all investing, you could always get back less than you put in.

As your money is invested, you’ll still experience the same percentage of market volatility as the rest of the market. For example, if markets were to dip by 10% then so would your investments. This type of volatility is a natural part of investing and starting with smaller amounts could allow you to become more comfortable and confident in market movements over time. 

It’s important to state that getting more confident doesn’t mean increasing your risk, or even the amount you invest. It simply means understanding what risk level works for you.

Does micro-investing actually generate returns?

With micro-investing it is often a case of small in, small out. For example, if your £10 investment earns 5% returns, you’ll get £0.50. That same 5% return on a £100 investment would earn you £5, which would be £50 for £1000, £500 for £10,000 and so on. However, if it’s your first time dipping your toes into the investment world, micro-investing can help to give you an idea of how everything works.

And there’s another added bonus. If you’re able to add small amounts regularly, then you could see your money really build up over the long run. For example, if you invested £10 a month (starting with an initial investment of the same amount), after 5 years you could have £655.68 invested if markets perform as expected![3]  If you kept at it for another 5 years, that could increase your investments to £1,421[4] which isn’t bad for the equivalent price of two pints a month... just imagine if you invested the price of a dinner out instead!

However, remember that this is only a forecast and is not a reliable indicator of future performance. As this is the projected value for a Wealthify Confident Plan with an Original theme, the amounts you could get may change depending on the theme and risk level you choose, as well as how the markets perform over time.

Is micro-investing worth it?

Micro-investing could be an interesting way to see if investing is right for you. Thanks to the lower costs, it’s also an easy way to see if you could get more potential from any extra cash you have.

It’s also a nice starting point for people who don’t like to take a lot of risk with their money – if the amount you’re investing is low, then you only stand to lose a very small amount. This could help you understand more about how investing works, better gauge how much risk you’re willing to take, or even let you compare investing to cash savings.

How do I start micro-investing?

At Wealthify, you can start investing from just £1 and can add as much – or as little – as you want to your Investment Plan whenever you feel like it. That means that you can start as small as you want and build up your Plan in a way that works for you.

You can choose from one of our five levels of risk, or even open multiple Plans at different risk levels to get a better understanding of how your money may move. Our experts do all the hard work for you by planning, buying, selling, and monitoring your investments to help keep your money on track. If you’re looking for a quick way to get started, why not open a Stocks and Shares ISA and try it for yourself?

 

 

  1. Numbers and returns are for illustration purposes to show how compounding works and are not based on or indicative of expected returns.
  2. This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £1,883. If markets perform better, your return could be £2,919. Values correct as of 16/02/2022
  3. This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £579.17. If markets perform better, your return could be £739.59. Values correct as of 07/02/2022
  4. This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £1,183. If markets perform better, your return could be £1,702. Values correct as of 07/02/2022

 

 

Please remember that past performance is not a reliable indicator of your future results.

With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.

You should seek financial advice if you’re unsure about investing.

The projected values include the impact of fees and any fund charges. The projected values show the possible future value of your Plan in different market conditions. These are only forecasts and not a reliable indicator of future performance. With investing, your capital is at risk and you could get back less than you put in. More details.

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